Re Kar Wok Textiles Ltd

HCCW000224/1983

COMPANIES WINDING-UP

______________

_____________

Coram: The Honourable Mr. Justice Jones in Court.

Date of hearing: 29 March 1984

Date of delivery of decision: 29 March 1984

__________

DECISION

__________

1. This is a motion for contempt issued against MO Chi Chung (the Contemnor) the managing director of Kar Wor Textiles Limited (the Company) upon the court's direction following representations made by the Official Receiver, at a hearing on the 23rd March 1984.

2. A winding-up petition was presented against the Company on the 29th September 1983 on the grounds that it is insolvent and unable to pay its debts and that it is just and equitable to do so. The company was ordered to be wound up on the 24th January 1984 when the Official Receiver was appointed to be the provisional liquidator. Since the petition was presented and up to the present time the Contemnor has been using his endeavours to rescue the company. To this end the case has been before the court on four previous occasions to hear various applications.

3. On the 1st February 1984 an order to stay the proceedings was made upon certain terms. One of the terms was that an application to rescind the winding-up order be adjourned until the 23rd February 1984. On the 23rd February 1984 the case was further adjourned until the 2nd April 1984. However, on the 28th February 1984 the order to stay was lifted and other orders were made upon undertakings given by the contemnor as a contributory of the company through his Counsel. The undertakings were as follows :-

On the 23rd March 1984 Mr. Robertson appeared before me on behalf of the Official Receiver and submitted a report in which he sought various directions as a result of his contention that the Contemnor had been in breach of the undertakings. Based upon his report and submission I was satisfied that there was a prima facie case that the Contemnor had been in contempt. Accordingly I made an order that he appears before me to show cause. The grounds for the breach are that the Contemnor:-

"failed to pay agreed instalments to the creditors and failed to submit Statement of Affairs on or before the 10th March 1984 and to supply a verified list of creditors on or before 5th March 1984.".

With regard to the first complaint it is alleged that 23 creditors of the company were not paid 25% of the amount outstanding at the 3rd November 1983. The Official Receiver paid a sum of $65,000 from the company's assets to certain creditors on the basis of the undertakings and now justifiably feels in a very embarrassed position.

4. Mr. Bleach who appeared for the Contemnor concedes that there has been a breach of the undertakings, but that in the main they are technical. Mr. Robertson has drawn my attention to various discrepancies in the explanations given by the Contemnor and the statement, in the Statement of Affairs and the Official Receiver's report. In his affirmation of the 28th March 1984 the Contemnor with reference to the creditors says in paragraph 2:-

"When I gave the undertaking, it was my honest belief that I should only pay all those creditors who have a rightful claim against the Company. In fact, my accountants Messrs. S.Y. Yang & Co. in their letter of the 9th March 1984 addressed to the Official Receiver mentioned that the list of creditors prepared by them might be considered as representing the full outstanding debts of the Company if there be no dispute over the amounts stated therein.".

He continued by setting out details of debts which are disputed for various reasons.

5. There is no doubt that the Statement of Affairs is defective whilst a verified list of creditors has not been submitted. Mr. Robertson has put his points to me forcefully and submits that the breach by the Contemnor is deliberate and wilful. However, in effect, he is submitting that I should accept his view of the evidence, and reject that given by the Contemnor which is only on affirmation for he did not go into the witness box.

6. Clearly the most serious breach was the failure to pay all the creditors resulting in the consequent embarrassment to the Official Receiver to which I have already adverted. Again it is evident that the Contemnor has been fully aware of the defects in the Statement of Affairs for this was discussed at a meeting at the Official Receiver's office on the 20th March 1984.

7. The mere breach of an undertaking even if it is technical amounts to a contempt. Mr. Bleach submits that if the breach was wilful I should have regard to the realities of the situation. This must necessarily take into account the fact that the Contemnor over the past few months has had his mind fully occupied with the rescue operation and therefore in view of the explanations that have been given a lenient approach should be adopted. If the breach was wilful and in deliberate disregard of the undertakings given very serious consequences would naturally follow. However the Contemnor admits his failure to comply with the undertakings, but tenders his apology and regret. In paragraph 9 of his affirmation, he says:-

" Since prior to the presentation of the winding-up petition, I personally have been under a great deal of pressure and have throughout recognised the obligations owed by the Company to its various Creditors. As a major shareholder of the Company, I have regarded these obligations as personal ones. In making the pending application, I have done so in the firm belief that not only would the Company be able eventually to trade itself back into profitability but also because this was the only way in which the true Creditors of the Company would be repaid in full.".

Taking all matters into consideration and bearing in mind that these proceedings are quasi-criminal in nature I find that it has not been established beyond all reasonable doubt that the Contemnor acted wilfully and in deliberate disregard of the undertakings. In the circumstances I shall not impose any punishment by way of imprisonment or a fine. However, I do not consider that the breach can be described as merely technical. In the circumstances, there will be an order that the contemmor pay the costs of this application, and there will be an order for an enquiry as to damages which may be suffered by the Official Receiver.

Representation:

Mr. Robertson for Official Receiver.

Mr. John Bleach (Rowdget W. Young & Co.) for Comtemnor.