Re Trocadero Ltd

HCCW000022/1985

Motion to strike out winding up petition on the just and equitable ground - petition an abuse of the process of the court as the petitioner did not come to the court with clean hands In re. Westbourne Galleries Ltd. (1973) A.C. 360 applied - petitioner also acted unreasonably by not adopting the procedure provided in the Articles of Association for the purchase of his shares instead of a petition to wind up the company Charles Forte Investments Ltd. v. Amanda (1964) 1 Ch. 240 and In re A Company (1983) 1 W.L.R. 927 applied - petition dismissed.

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Coram: The Honourable Mr. Justice Jones in Court

Date of hearing: 15th February 1985

Date of delivery of judgment: 25th February 1985

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JUDGMENT

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1. This is a motion to strike out a petition that was presented on the 15th January 1985 for the winding up of a company called Trocadero Limited (Trocadero) on the just and equitable ground. By an amendment to the petition granted at the hearing it is averred that if Trocadero is wound up there will be a surplus for the shareholders.

2. The petition was advertised on the 15th February 1985. In support of the petition there is the usual statutory affidavit verifying the contents sworn by Mr. J.A. Dymock (the petitioner). Two affidavits in reply have been filed by Mr. Wyndham on behalf of Trocadero. His evidence is uncontradicted.

3. Trocadero was incorporated in Hong Kong on the 23rd June 1981. The authorised share capital is $1,000.00 divided into 1,000 shares of $1.00 each. Trocadero was formed as a result of a joint venture between the petitioner, Mr. D. A. Wyndham, Mr. M.J. Carter and Mr. Daniel Chan who were appointed to be the directors of the company. Each director holds 1 share of the 4 shares that have been issued and are fully paid. Mr. Chan was responsible for the day to day running of the company.

4. In July 1983 Trocadero obtained a banking facility for H K$500,000 from Barclays Bank International Limited. As one of the requirements for the loan all the directors entered into a joint and several guarantee with the bank. No remuneration has been paid to any of the directors. However, each of the directors has received a loan from the company in the sum of $59,145.60.

5. Mr. Wyndham and Mr. Carter are the directors and shareholders of Beau Jangles Limited (Beau Jangles) a company incorporated in England which carries on business in London as an importer of garments, clothing acid fashionware for sale to departmental stores and retailers in the United Kingdom. Beau Jangles also designs and markets products for sale. Bauhinia Developments Limited (Bauhinia) is a company incorporated in Hong Kong which is an exporter of garments. The petitioner is the managing director of Bauhinia and Mr. Chan was his assistant and co-director. Originally Beau Jangles ordered goods from Bauhinia who would in turn place orders with manufacturers in Hong Kong. Shipments would be made by Bauhinia to Beau Jangles who would import them and sell to their customers in the United Kingdom.

6. Trocadero was formed as a result of the suggestion of Mr. Wyndham and Mr. Carter on behalf of Beau Jangles to the petitioner and Mr. Chan of Bauhinia for the purpose of procuring the manufacture and export of young ladies fashion accessories and garments in which products Bauhinia had no experience. The object was to combine the use of the design and marketing expertise, United Kingdom customer contacts, and sales ability of Beau Jangles and the exporting and administrative experience of Bauhinia.

7. Although it was alleged in the petition that the business of Trocadero had been entirely financed and conducted by Bauhinia it is clear that this was not correct for the main financial assistance was the bank facility to which I have already referred.

8. It appears that the company has traded successfully for the turnover for the year ended the 31st December 1983 amounted to $2,769,049 with a net profit after taxation of $282,423. Bank statements reveal that the present financial state of the company is very sound. The company has contracts for the shipment of goods up to April 1985.

9. In June 1984 Mr. Chan resigned his position as a director of Bauhinia. Following the resignation the petitioner discovered that Mr. Chan had sold Bauhinia 's textile quota for one tenth of the market price to Mr. Sonny Chan Bing Sun of another company with whom Mr. Chan had gone into business. It is also alleged that Mr. Chan had taken with him some riles and articles that belonged to Bauhinia. Mr. Chan has since been arrested and charged with theft of the textile quota. He is at present on bail pending trial. Neither Mr. Wyndham, Mr. Carter nor Trocadero is in any way concerned with the dispute and no misconduct has been alleged by the petitioner against Mr. Wyndham and Mr. Carter.

10. As a result of Mr. Chan's conduct the petitioner withdrew his personal guarantee to the bank for the loan to Trocadero. Attempts acre subsequently made by Mr. Wyndham and Mr. Carter to persuade the petitioner to reinstate the guarantee, but they acre unsuccessful. In particular a telex dated the 31st October 1984 from Mr. Wyndham and Mr. Carter to the petitioner explains their position. I set out the relevant extract from the telex which reads: -

The petitioner made an approach to the other directors to sell his shares, but did not adopt the procedure provided for the transfer of shares contained in Article 15 of the Articles of Association of the company. Article 15(b) provides:-

The petitioner said that his share was worth between H K$230,000 and HK$300,000, but that he had only been offered £3,000. Mr. Wyndham responds by saying that the petitioner has failed to disclose that the offer took into account the waiver of the loan made to him by the company and a payment due for the balance of the purchase price for his share.

11. At an Extraordinary General Meeting held on the 15th January 1985 the petitioner was removed as a director of Trocadero.

12. The petitioner contends that Mr. Wyndham and Mr. Carter have continued to deal with Mr. Chan despite Mr. Chan's resignation from Bauhinia and by so doing they have, as the majority shareholders, conducted the business to his exclusion and prejudice as the minority shareholder. However, Mr. Wyndham says that they have continued to deal, with Mr. Chan as he is engaged in the day today running of the business whereas the petitioner is not so involved. Apart from the conduct of Mr. Chan the petitioner alleges that the other directors deliberately prevented him from attending a directors' meeting in London on the 10th August 1984 when a number of uncontroversial items including the re-appointment of directors were listed for discussion. He says that he only received 7 days notice of this meeting when the other directors knew that he would be in Hong Kong and unable to attend so that he was compelled to appoint an alternate director to attend on his behalf. However, Article 44 of the Articles of Association provides that meetings of the directors may be held in Hong Kong or in any other part of the world as may be convenient for the majority. The meeting was eventually cancelled, but the resolutions were passed in accordance with the procedure set out in Article 46 of the Articles of Association which provides:-

The petitioner objected to this procedure on the grounds that he did not receive notice of the resolutions for his consideration and comments. He also complains that the other directors failed to call a meeting to discuss the future organisation and operation of the company. It is now not in dispute that the meeting on the 10th August 1984 was not cancelled because of any sinister motive, but because of legal advice that if it had been held in England it might have prejudiced the non resident tax status of the company. It is significant that all the resolutions were passed including the re-appointment of the 4 directors. The petitioner makes a further complaint that he had not seen the audited accounts for the year ending 1983 or the management accounts. However, he had not been refused access at any time, and he has since seen the accounts without encountering any difficulty from the company.

13. On the 24th December 1984 the petitioner received a notice from the secretary of Trocadero informing him that it was proposed to pass resolutions pursuant to Article 46 with regard to the signatories for the bank accounts. He asserts that this was another attempt to exclude him from the conduct and management of the company, but he gives no reason for this belief.

14. In In re Westbourne galleries Ltd. (1973) A.C. 360 that was cited to me by Mr. Poon who appeared for Trocadero, it was held that a petitioner who relies on the just and equitable ground must Come to the court with clean hands. On the evidence the petitioner failed to make a full and frank disclosure in respect of four matters. Firstly he omitted to mention the waiver of the loan by the company in connection with the offer to buy his share, secondly he said that the company was solely financed by Bauhinia, thirdly he attributed mala fides by the other directors with regard to the cancelled meeting and the procedure adopted to pass the resolutions under Article 46, fourthly there was no evidence to support his allegation that the other directors had got together to form a majority with the express object of excluding him from the conduct and management of the company.

15. The evidence conclusively shows that the petitioner's contentions of exclusion in relation to the meetings, the resolutions that were passed and the signing of the accounts were wholly unfounded. In fact the breakdown in the relationship was at the instigation of the petitioner, not by the other directors. The petitioner's failure to come to the court with clean hands thus precludes his right to have the company wound up. The petition is therefore an abuse of the process of this court and will inevitably fail see In re Gold Hill Mines (1883) 2.3 Ch. 210, Bryanston Finance Ltd. v. De Vires (No. 2) (1976) 1 Ch. 63.

16. The sole reason for the presentation of this petition was the conduct of Mr. Chan. By the withdrawal of his guarantee the petitioner announced that he no longer intended to participate in the affairs of the company and his approach to the other directors to purchase his share showed that he wished to extricate himself from the company. Article 15 of the Articles of Association to which I have previously referred provides a contractual basis for the transfer of shares. Mr. Poon submitted that no justifiable reason had been put forward by the petitioner as to why he did not avail himself of this procedure instead of proceeding to wind up the company. Section 180(1A) of the Companies Ordinance provides: -

"Where the petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the court shall not refuse to make a winding-up order on the ground only that some other remedy is available to the petitioners unless it is also of opinion that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.".

Mr. Poon cited Charles Forte Investments Ltd. v. Amanda (1964) 1 Ch. 240 where it was held that if the allegations against the directors could be substantiated the petition to wind up was misconceived as there were alternative and more suitable remedies. Mr. Poon also drew my attention to In re A Company (No. 002567 of 1982) (1983) 1 W.L.R. 927 where Vinelott J. exercised his discretion not to wind up the company where the petitioner was acting unreasonably in rejecting an alternative course.

17. Mr. Smith for the petitioner referred to In re DJH Consultants Limited and Others Civil Appeal No. 164 of 1984 (unreported) for the proposition that the jurisdiction to strike out will not be used except in plain and obvious cases. Although the Articles of Association provide an agreed machinery for the transfer of shares Mr. Smith asserts that as the petitioner has been excluded from the management of the company he is entitled to petition to wind up for there is no real alternative. As I have said the petitioner has not established that he was excluded from the business by any misconduct of the other directors in connection with the affairs of the company.

18. If the petitioner had followed the procedure set out in Article 15 and a price was not agreed for his share with the other directors the price would then be referred to the auditors of the company for determination. No complaint has been made against the auditors by the petitioner nor was any reason proffered as to why he did not avail himself of this remedy. The actions of the petitioner reveal that he has behaved improperly by exerting pressure on the company in an attempt to have his share purchased at a price dictated by him. Not only is the petition an abuse of the process of the court, but the petitioner has acted unreasonably in presenting it when he has a perfectly good alternative remedy open to him. It would not therefore be just and equitable to wind up the company in these circumstances.

19. Accordingly the petition will be struck out with costs to the company.

Representation:

Mr. W. Poon (Hampton, Winter & Glynn) for Company/Applicant.

Mr. C. Smith (Pritchard Englefield & Wang) for Petitioner/ Respondent.